February 24, 1998
Beta Oil & Gas, Inc.
000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xx. X. X. Xxxxxxx
Re: Joint Exploration Agreement
Dear Xx. Xxxxxxx:
The purpose of this Joint Exploration Agreement (this "Agreement") is to set
forth the agreements between Rozel Energy, L.L.C. ("Rozel") and Beta Oil & Gas,
Inc. ("Beta"), with respect to Beta providing certain funding to Rozel for the
acquisition of oil and gas leases in exchange for Beta receiving from Rozel the
right to participate for a working interest in prospects generated on such
leases. The following numbered paragraphs of this Agreement reflect our
agreement regarding this matter.
1. Lease Acquisition Funding by Beta. Beta shall provide lease acquisition
funds (the "Lease Acquisition Funds") to Rozel for Rozel's use in the
acquisition of state and federal oil and gas leases within the area
outlined on Exhibit "A" attached hereto and made a part hereof (the
"Program Area"), pursuant to the following terms:
(a) Beta shall provide a total of $3,000,000 (the "Total
Commitment") to Rozel for a period of one (1) year commencing
March 1, 1998 and ending February 28, 1999 (the "Commitment
Period"), which Total Commitment includes any overhead
reimbursement fees paid by Beta to Rozel pursuant to Section
2(c) below.
(b) As part of the Total Commitment, Beta shall provide a minimum
of $750,000, and a maximum of $1,000,000 for Rozel to utilize
in the March 18, 1998, federal lease sale. If Beta provides
more than $750,000 to Rozel, and the amount over $750,000 (the
"Excess Amount") is not utilized in the acquisition of a
federal lease due to bid rejection, then Rozel immediately
shall reimburse the Excess Amount to Beta. Any remaining
amount shall be retained by Rozel in the Account described in
Section 5 below for Rozel's use in state lease sales pursuant
to Section 1(c).
(c) The remaining balance of the Total Commitment that is not
utilized in the March 15, 1998, federal lease sale, shall be
provided by Beta to Rozel for Rozel to utilize in state lease
acquisitions during the Commitment Period. Beta's commitment
hereunder shall not require Beta to provide more than $750,000
during any one quarter of the Commitment Period on a
cumulative basis (for example, at the conclusion of June 1998
the required cumulative amount provided by Beta shall not
exceed $1,500,000, and at the end of September 1998 the
required cumulative amount provided by Beta shall not exceed
$2,250,000).
(d) Notwithstanding anything herein to the contrary, Rozel's
bidding on and any acquisition of any federal or state leases
shall be in Rozel's sole discretion, including, without
limitation, Rozel's determination of the leases on which Rozel
bids and the amounts of such bids.
2. Right to Participate in Prospects. In consideration for Beta providing
the lease acquisition funds pursuant to the Total Commitment as
described in Section 1 hereof, Beta shall have the right to review all
Prospects (as hereinafter defined) generated by Rozel within the
Program Area on leases acquired by Rozel utilizing Lease Acquisition
Funds, and the right (but not the obligation) to participate on a
Prospect-by-Prospect basis in such Prospects, on the following terms
and conditions:
(a) Upon Rozel's acquisition of a leasehold interest utilizing
Lease Acquisition Funds and Beta's election to participate in
a Prospect generated by Rozel on such leasehold, and if at
least a 25% WI was available for acquisition by Rozel, Beta
shall pay 12.5% of all WI (as hereinafter defined) costs
through the wellhead of the initial test well on such
Prospect, and shall earn a 9.375% WI for such initial test
well on such Prospect. Thereafter, Beta shall have a 9.375% WI
in all future activities on such Prospect, including, without
limitation, platform construction, pipeline installation and
any additional drilling on such Prospect. Upon Beta's
election to participate in a Prospect, Beta shall enter into
an operating agreement with Rozel and the other participants
in such Prospect. In the event of any conflict between the
terms and provisions of this Agreement and the terms and
provisions of such operating agreement, the terms
and provisions of this Agreement shall govern. The BIWI and
the ORI described in Section 2(c) shall not be subject to or
bound by any security interests, liens, encumbrances,
forfeiture provisions, burdens, obligations or other
provisions limiting or diminishing the value of such interests
which arise under or pursuant to such operating agreement.
(b) If less than a 25% WI is available for acquisition by Rozel on
a Prospect, Beta shall have the right to participate for 50%
of the WI that is available to Rozel on the same basis as in
the preceding Section 2(a) (i.e., on a one-third for
one-quarter basis). If more than a 25% WI is available for
acquisition by Rozel on a Prospect, and Rozel elects, in its
sole discretion, to make any portion of such excess WI
available to Beta, Beta may (but is not obligated to) elect to
participate for such additional WI on the same basis as in the
preceding Section 2(a).
(c) Beta's WI shall be subject to its proportionate share of all
lease burdens, including, without limitation, (i) the
landowner's royalty, any overriding royalties, and any other
royalties or other encumbrances and burdens that affect the
leasehold interest, and (ii) the reservation by Rozel of a
back-in after payout Working Interest (the "BIWI") equal to
6.25% of 8/8ths WI, proportionately reduced, and the ORI (as
hereinafter defined), each of which shall be reserved to Rozel
or its designee. Payout of the BIWI shall occur with respect
to each Prospect on the date on which the Prospect Revenues
(as hereinafter defined) equal Prospect Expenses (as
hereinafter defined).
(d) For each Prospect in which Beta elects to participate, Beta
shall pay $50,000 per one-eighth WI of Beta (or prorated
portion thereof) to Rozel as a fixed overhead reimbursement to
Rozel. Pursuant to Section 1(a) hereof, such overhead
reimbursements by Beta to Rozel shall be deducted from the
Total Commitment.
(e) Upon the acquisition of any lease by Rozel utilizing Lease
Acquisition Funds under this Agreement, there shall
immediately be created an AMI (as hereinafter defined) with
respect to the Prospect on such lease, without further action
by the parties. Provided Beta participates for its WI in the
initial test well on such Prospect pursuant to Section 2(a),
Beta shall thereafter have the right to participate for its WI
in any subsequent lease acquisitions within such AMI.
Likewise, if Beta participates in the initial test well on a
Prospect, or if Beta has reviewed any geophysical, geologic,
or other information provided by Rozel describing such
Prospect, Beta shall not acquire any direct or indirect
interest in any lease or well within such AMI. If Beta
acquires such an interest within the AMI in violation of the
foregoing provision, in addition to Rozel's other rights and
remedies at law or in equity, Rozel shall have the right to
require that Beta convey all such rights to Rozel in exchange
for payment by Rozel to Beta of the direct out-of-pocket costs
that Beta paid to acquire such interest. Upon any such
conveyance by Beta to Rozel, Beta shall retain its rights
described in this Agreement to acquire its WI in such
leasehold interest.
3. Utilization of Lease Acquisition Funds. Rozel shall utilize the Lease
Acquisition Funds solely for the acquisition of state and/or federal
oil and gas leases within the Program Area. If Rozel acquires any
federal or state leases within the Program Area in lease sales during
the Commitment Period, Rozel shall utilize the Lease Acquisition Funds
available in the Account. If adequate Lease Acquisition Funds are not
available to Rozel in the Account for any reason, and as a result Rozel
acquires state or federal oil and gas leases without utilizing Lease
Acquisition Funds, Beta shall have no rights, and Rozel shall have no
obligations to Beta, regarding any Prospect generated with respect to
such state and federal oil and gas leases. Any Lease Acquisition Funds
that are expended by Rozel on Prospects in which Beta elects not to
participate in the initial test well, shall be repaid to the Account
described below (or directly to Beta if the Commitment Period has
expired) if and when Rozel either sells its interest in or drills the
Prospect, whichever occurs first.
4. Prospects. Rozel shall have sole responsibility for the generation of
Prospects, and to the extent it generates Prospects, Rozel shall keep
Beta informed on a timely basis of such developments. Upon Rozel
utilizing Lease Acquisition Funds to acquire a Prospect to Beta, Rozel
shall allow Beta to review at Rozel's office such Prospect, subject to
Beta entering into a mutually acceptable form of confidentiality
agreement with Rozel. Rozel shall notify Beta in writing with a
description of the proposed initial test well on any Prospect in which
Beta has the right to participate hereunder. Beta shall notify Rozel
in writing of Beta's election to participate in such initial test well
for Beta's WI within two weeks of Beta's receipt of such notice from
Rozel. If Beta fails to so notify Rozel within such two-week period,
Beta shall be deemed to have elected not to participate in such initial
test well. If Beta participates in such initial test well, the
drilling of any subsequent xxxxx shall be pursuant to the terms of the
applicable operating agreement for such Prospect.
5. Lease Acquisition Fund Account. Upon execution of this Agreement, Beta
shall set up an interest bearing account (the "Account") with Bank One
in Lafayette, Louisiana, in the name of Rozel. Beta shall establish
and maintain a minimum balance of $100,000 in this account beginning on
or before April 15, 1998. To the extent additional funds are required
for a lease acquisition by Rozel, subject to Beta's limits on its
commitments hereunder, Beta shall wire transfer the required funds to
the Account within fifteen days of Rozel's request, or within such
shorter period which Rozel may request based on the availability of the
applicable lease. Subject to the obligation of Rozel to return any
Excess Amount (as described in Section 1(b) hereof), any funds
withdrawn by Rozel from the Account for lease acquisition purposes that
are not expended at either a federal or state lease sale, shall be
immediately deposited back into the Account. Notwithstanding anything
herein to the contrary, if Rozel acquires a state or federal oil and
gas lease without utilizing any Lease Acquisition Funds, because the
Total Commitment has been reached, the quarterly commitment limit of
$750,000 has been reached, or Beta fails for any reason to place
sufficient funds in the Account, Beta shall have no rights with respect
to such lease or any Prospects developed thereon.
6. Miscellaneous.
(a) For purposes of this Agreement, in addition to the other terms
defined herein, the following terms shall have the following
respective meanings:
(i) "AMI" means an area of mutual interest encompassing
the surface area comprising a Prospect and the
surface area within a distance of one and one-half
miles beyond the outside boundary of such Prospect;
provided, however, that an AMI shall not include
Blocks 9 and 10, Xxxxxx Island Area, Blocks 41, 43,
and 67, Ship Shoal Area, and Xxxxx 00, Xxxxx Xxxx
Xxxx, and any area contained within the boundaries of
a then existing AMI.
(ii) "NRI" means, with respect to any leasehold interest,
the interest in and to all production of oil, gas and
other minerals produced, saved or sold from, under or
by virtue of such leasehold interest after giving
effect to all valid lessor royalties, overriding
royalties, production payments, carried interests and
other encumbrances or charges against production
therefrom.
(iii) "ORI" means the overriding royalty interest of Rozel,
or its designee, in and to oil, gas and other
minerals produced from any leasehold interest, free
of the expenses of production and operation, other
than processing or transportation costs, which
interest shall burden Beta's WI in such leasehold
interest. The ORI shall be reserved by Rozel in all
leasehold interests as follows:
(1) If the NRI to all owners of the WI
in the leasehold interest is greater
than or equal to 83%, the ORI on
such leasehold interest shall be 4%
of 8/8ths, proportionately reduced
to Beta's WI in such leasehold
interest.
(2) If the total NRI to all owners of
the WI in the leasehold interest is
greater than or equal to 76% and
less than 83%, the ORI on such
leasehold interest shall be 3% of
8/8ths, proportionately reduced to
Beta's WI in such leasehold
interest.
(3) If the total NRI to all owners of
the WI in the leasehold interest is
less than 76%, the ORI on such
leasehold interest shall be the
greater of (a) 2% of 8/8ths or (b)
the difference between the NRI to
the owners of the WI and 73%,
proportionately reduced to Beta's WI
in such leasehold interest.
(iv) "Prospect" means an area within the Program Area
which Rozel has analyzed and is believed to contain
one or more geological structures which are believed
to have the potential of producing oil, gas and/or
other minerals in commercial quantities and which is
designated as a "Prospect" by Rozel.
(v) "Prospect Expenses" means as to each Prospect, the
aggregate third party and direct overhead costs and
expenses incurred by Beta in connection with the
acquisition, ownership and development of such
Prospect, including, without limitation, the costs
and expenses associated with acquiring the leasehold
interest within the Prospect Area. Prospect Expenses
also shall include exploring such leasehold interests
for minerals (including, without limitation, the cost
of drilling one or more xxxxx) and developing
minerals from the Prospect Area (including, without
limitation, all drilling and operating costs incurred
with respect to such Prospect).
(vi) "Prospect Revenues" means as to each Prospect, the
aggregate gross proceeds received by Beta from
production attributable to xxxxx on such Prospect,
less and after deducting from such gross proceeds
Beta's share of (1) all burdens on production in
existence at the time the first well is spudded on
such Prospect (including the ORI but excluding any
burdens not affecting the interests, if any, held by
Beta), attributable to the xxxxx on such Prospect and
paid after the date on which Beta acquires an
interest in such Prospect, and (2) all ad valorem,
excise, production, severance and like taxes incurred
after the first well is spudded on such Prospect.
(vii) "WI" means working interest, which is the percentage
interest that an owner of an oil, gas or other
mineral lease must contribute to, or be liable for,
production and operating expenses of such oil, gas or
other mineral lease. A WI owner is entitled to share
in revenue from such oil, gas or other mineral lease
equal to its WI less all burdens attributable to such
owner's WI.
(b) If any one or more of the provisions of this Agreement shall
for any reason be held by a court of competent jurisdiction to
be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect
the remaining provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision had never been a part hereof. This
Agreement shall be construed in accordance with the laws of
the State of Texas, without giving effect to any conflict of
law rules or provisions.
(c) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and
supercedes all previous communications, representations or
agreements, whether oral or written, with respect to the
subject matter herein. No agreement or understanding varying
or extending the terms hereof will be binding on either party
unless in writing and executed by an authorized representative
of each party. A benefit, right or duty provided by this
Agreement shall be deemed waived only when expressly agreed in
writing between the parties. The waiver of one instance of any
act, omission, condition or requirement shall not constitute a
continuing waiver unless specifically stated in the aforesaid
written waiver.
(d) This Agreement is not intended to create, nor shall it be
construed as creating, any mining partnership, joint venture
or other partnership, or any agency relationship between Beta
and Rozel or their employees or representatives.
Please have an authorized representative of Beta sign this Agreement in the
space provided below to confirm the agreements set forth herein and return a
signed copy to the undersigned.
Very truly yours,
ROZEL ENERGY, L.L.C.
By:
C. Xxxxxxx Xxxxxx, Manager
ACKNOWLEDGED AND AGREED
effective this ___ day of February, 1998
BETA OIL & GAS, INC.
By:
Name:
Title:
